The lowest ROE recorded in the past five years. Buffett looks for companies with consistently high ROE, not just high average ROE. Above 12% minimum over five years signals a genuinely high-quality business.
Formula
Description
The lowest ROE recorded in the past five years. Buffett has repeatedly emphasized that he looks for companies with consistently high ROE, not just high average ROE. The minimum value reveals how well the company performs even in its worst recent year.
Interpretation
Above 12% minimum ROE over five years signals a high-quality business. Below 8% at any point suggests the moat may not be as strong as the average suggests. Compare to ROIC consistency for a more complete picture.
Related Risk Indicators
Whether gross margins are improving or declining over five years. A positive trend means the company is gaining pricing power or reducing costs. Negative trends in a mature business are a warning sign.
Whether bottom-line profitability is improving or declining over five years. A positive trend indicates the business is becoming more profitable. The most durable improvement comes from expanding gross margins rather than cost-cutting.
The lowest ROIC recorded over five years. A company with a high minimum ROIC (above 10%) maintains strong returns even in bad years, indicating a genuinely strong business with a durable competitive advantage.
Measures the accrual component of earnings relative to total assets. When cash flow exceeds reported earnings, the company has high-quality earnings. Large accruals relative to assets are a red flag for potential manipulation.
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